Can the City’s Investment in Electronic Medical Records Net Health and Cost Benefits?

As they wrangle over health care reform in Washington, one of the tools that policymakers count on to lower costs while improving medical outcomes is expanding the use of electronic health records. But well before national health reform took center stage, New York City embraced this technological tool.

For several years now, New York City’s Department of Health and Mental Hygiene has had its own initiative underway to help medical practices, particularly in under-served communities, integrate electronic records into their operations. The Bloomberg Administration clearly values the initiative: it added city dollars in the Preliminary Budget to offset state and federal cuts in Medicaid funds previously expected for the program at a time when other health services are facing the budget axe.

In 2007, as part of its Primary Care Information Project, the health department designed and began offering an electronic health record system to city physicians who care for the neediest patients. To qualify for the software and training package offered by the city, providers must have a client base made up of at least 10 percent Medicaid-enrolled or uninsured patients. Doctors must also be willing to bear the costs of hardware, installation, Internet connectivity, productivity loss during implementation, and a $4,000 fee to a fund that rewards providers for quality improvement. The fund offers on average $10,000 per physician for every patient with well-controlled cardiovascular risks and gives higher bonuses for Medicaid-enrolled or uninsured patients with health issues such as diabetes and heart disease.

The project’s budget for 2009 included $4.8 million in city funds and $13.5 million in state, federal, and private funds. One-quarter of the budget covered personnel costs, one-quarter covered supplies and equipment, and the remaining half was paid toward license fees for the software developer, eClinicalWorks, to support each provider that uses the technology. So far, over 1,600 providers have signed up.

The city’s role in this initiative is unusual, especially since many of the doctors derive significant income from private payers. The technology is more commonly used by large for-profit medical providers. But the city is targeting its efforts to smaller and less specialized practices.

Unlike standard electronic health records for which the purpose is simply to improve clerical efficiency, the city’s product has an additional goal: to improve public health by tracking health trends across all providers who participate in the system. Using the combined data from small practices can help health officials identify trends and potential risks to public health.

The health department’s system can also help individual patients by reminding doctors to monitor blood pressure and cholesterol, discourage smoking and alcohol use, offer vaccinations, and screen for depression, cancer, and sexually transmitted diseases. Practice-wide quality indicators and measures of indiviual patients’ progress are shared with the health department, and other participating physicians (with personally identifying information removed), and with the patients themselves.

The health department hopes the system will yield cost savings for the health system as a whole, as patients are less likely to need costly interventions to manage chronic conditions. But it is too soon to tell yet if the city’s investment in the system will actually result in savings. Academic research suggests that compared to paper records, electronic health records lower medical chart filing and transcription costs, increase revenue through more accurate billing, reduce the number of drugs and diagnostic tests prescribed, and prevent costly mistakes in administering drugs. One recent study showed net losses to providers within the first year of adoption but benefits that rose sharply in the years following, totalling $86,000 in net benefits per provider over five years.

Given the potential for savings, the city would expect a return on its investment. However, the direct effect of the new system on the city’s bill for health care—$5.5 billion for Medicaid and $3.5 billion for employee and retiree health benefits in 2010—is largely unknown. While electronic records can help doctors directly by lowering their administrative costs, a reduction in the city’s health care tab will depend on a couple of key factors. One factor will be the share of patients covered by plans that provide a flat fee to doctors for patient care. The other factor will be the degree to which private insurers and Medicaid managed care companies translate lower costs of care for doctors receiving a flat fee—mostly due to electronic records leading to fewer tests and procedures—to lower premiums paid by the city.

For the city cost savings from the health record initiative remain somewhat speculative. But, like other investments it has made (think calorie labeling and transfat bans), the city expects to see clear health benefits for its efforts.